While potential acquirers of financial advice businesses struggle to find ways to lock in staff following a merger, groups of advisers are likely to start leaving large institutions to set up boutique businesses, prominent industry executive
Tony McDonald
says.

“I see parts of large businesses setting up boutiques," said Mr McDonald, predicting this was likely to occur in 12 to 18 months’ time.

He argued that the ability to buy services such as administration, custodian and accounting was making it easier to go it alone, while clients would start to demand more personalised advice with transparent fee structures.

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Companies looking to merge needed to tie in their staff through incentive schemes, legal agreements or share schemes. Without finding ways to convince the staff to stay post merger, the price a potential buyer was willing to pay fell because the advisers were the main revenue generators.

Locking staff in, said Mr McDonald, was “one of the crucial aspects" .

The former Snowball chief warned there was room for only a small number of medium-sized advice networks after the overhaul of industry practices. The advice industry is currently implementing reforms designed to improve the quality of advice, remove conflicts of interest and increase the transparency of costs.

“There is room for a very small number in that middle ground," said Mr McDonald. In order to survive, they will need to be ‘client focused’ and independent," Mr McDonald said.

Mr McDonald also dashed industry hopes that it could return to old business practices because the Coalition government planned to water down the reforms.

“The Coalition is not going to unwind the Future of Financial Advice reforms. If you think a change of government is going back to the future you are wrong," said Mr McDonald, who earlier this year established T&C with Carl Scarcella. He argued clients were increasingly demanding transparent pricing and value for money, regardless of the reform process.

T&C works with dealer groups to help them improve their businesses under the new regulatory regime or find a buyer for their firm.